Will Sears Holdings be the Next Victim of the Retail Cull?

The retail sector is getting hammered by changing tastes and competition from a trend toward e-commerce that doesn’t appear to be slowing down. Now Sears Holdings, which controls Sears and Kmart stores, is flashing the warning signals about a possible bankruptcy. Anne Steele writes at The Wall Street Journal that Sears says it’s “probable” that the company can mitigate its problems with “cost cuts, asset sales and other actions.”

The warning—the first such for the company—is the latest stumbling block for Sears, whose stock had dropped 39% in the 12 months through Tuesday. The shares fell 12% to $7.98 on Wednesday.

In a blog post Wednesday, Sears finance chief Jason Hollar sought to assuage investors, saying the disclosure was in line with regulatory standards and didn’t reflect management expectations for the business’s near-term health.

“We are a viable business that can meet its financial and other obligations for the foreseeable future,” he said, adding that the company’s auditors, Deloitte & Touche LLP, had given Sears an unqualified audit opinion, meaning it wasn’t expressing doubt about the company’s ability to meet obligations. A Deloitte spokesman declined to comment.

Mr. Hollar said the going-concern note reflects the company’s 2016 performance, when Sears lost $2.22 billion and ended the year with $4.2 billion in debt. “While historical performance drives the disclosure, our financial plans and forecast do not reflect the continuation of that performance,” he said.

Sears’s statements may have been triggered by an accounting rule that recently took effect requiring all companies to evaluate and disclose whether there is any significant doubt about the ability to stay in business. Outside auditors were already required to do such an assessment of their clients, but there was no requirement that a company’s management do its own evaluation.